Looking for your first Car in Germany after spending thousands of Euros getting the German Driving License. Now the the next step can be very straight forward but quite confusing. Because having your own car in Germany is often one of the most expensive financial decisions in you life as an Expat in Germany.
But how should you pay for it? Is it best to take out a car loan, or is leasing much cheaper? Or maybe it’s better to buy the car directly? Or can buying a used car in Germany be the right choice?
Buy, Lease or Finance a Car in Germany
Options to buy a car in Germany
When you’re trying to figure out the best way to buy a car in Germany, the first thing to ask is: Do you already have the money for it? And I’m not just talking about a brand-new car, I mean a new or a used car in Germany.
Do you have enough savings for car and are wondering if you should spend it all, or still think about financing or leasing?
Let’s take a look at the three main options.
Financing a car in Germany
If you buy a car, you become the owner of the vehicle and don’t have any other financial obligations after that. You could think of the car as part of your assets since, in theory, you can always sell it later for money.
However, the loss in value as the car gets older affects your assets directly. Also, you’re responsible for all the repairs and other costs.
Due to high interest rates compared to previous years, financing a car with a loan doesn’t seem as good. However, this option is still available.
How does car Financing work?
Financing means borrowing money from a bank to buy the car. You then repay the loan in monthly installments over a set period, like three, four, or five years. By the end of the loan term, the car is yours.
Monthly payments include interest. This is the fee for borrowing money from the bank. It adds to the total cost of the car. You can arrange the loan in different ways. For example, you could make a down payment at the start or a larger final payment at the end.
Leasing a Car in Germany
Financing means borrowing money for the car, while leasing means borrowing the car itself. Leasing is like long-term car rental. The car remains the property of the leasing company. You pay a monthly fee, known as the leasing rate, for a set period. This could be two, three, or four years. At the end of the lease, you return the car to the company.
There are two main points to consider when leasing a car in Germany. First, you need to pay for the loss in value of the car over the lease period. Second, you must account for the profit made by the leasing company. They aim to earn from leasing. This profit depends on general interest rates. Leasing companies use loans from banks to finance their cars. They pay interest on those loans.
Buying a Car in Germany with Cash
Now the third option is quite straight forward. If you have enough money, you can directly buy a car in Germany with cash.
By Cash I don’t mean that you take out cash from you bank account and pay with that. Cash just means that you directly buy the car from your own funds.
If the value of the car you intend to buy is more than a thousand or so Euros, then most sellers do accept an online transfer. That said, there is no specific rule to how you should transfer money to the seller. But most accept online money transfer from your bank account. So no need to worry about that.
Car Value Depreciation in Germany
Now, if you have the money saved up to buy a car, you’ll have to deal with the car’s value dropping over time. You can’t avoid that, whether you buy with cash or finance it.
If you pay in cash, the loss in value is reflected in the car’s worth going down. With leasing, you pay for the loss through the monthly lease payments.
What adds extra costs to both financing and leasing are interest rates when financing, or rental fees when leasing. So, if all other factors are the same, like the price of the car including any discounts, buying the car with cash is always the cheapest option because you avoid extra costs like interest or fees.
Buying, Leasing or Financing which has the highest depreciation?
To narrow down the options of buying, financing, or leasing, let’s look more closely at the value loss of cars. It’s well known that cars are a depreciating asset some even consider it a liability.
But how does a car depreciate or lose its value over time? To answer that Here’s the average value loss of a car over its lifespan, assuming it drives 15,000 kilometers per year.
Car value loss over time in Germany
What stands out is how quickly the value drops in the first few years. In just the first year, a new car loses about 25% of its value. Infact Depending on the new car model you choose, 10-15% of its value normally vanishes the moment you drive it off the dealer’s lot.
After three years, a car is roughly worth half of what you paid, and after four years, the value loss slows to about 5-6% per year. After 10 years, the car is worth about 10% of its original price.
You’ll also see that the average repair costs increase over time. So, you can’t avoid the roughly 50% value loss in the first three years, whether you buy, finance, or lease. Financially, it’s not the best idea to buy a brand-new car or even a car that’s only a year old. For example, if a car costs €40,000, after three years and 45,000 kilometers, €20,000 is just gone, used up from driving. And that doesn’t even include fuel, insurance, or maintenance.
So, if we say new cars are not worth it because of their steep value loss, leasing is also not a good option in most cases.
Of course, this varies depending on the car type, you are buying. However the used car market in Germany, isn’T following this model I just shared since 2020.
Calculations to help you decide
I am no expert but lets do some basic calculations.
A Brand new T-Cross from VW starts from 24.355€ . Leasing a similar car would cost about 188,00€ per month with 1290€ preparation costs if you drive 10000 kilometers per year. At 6.3% interest rate per year, you would pay 5.802,00€ for the 2 years you keep it.
If we look at a T-cross which is a little over a year old with about 19000 kilometers it would be 17300€, so 7000€ less than a brand new car.
An almost 4 year old T-cross with 26000 kilometers will cost you 14500€.
Obviously this is not an apples to apples comparison but I just wanted to share some rough estimations.
Why not buy a Used car in Germany?
So, ask yourself this: Isn’t it really just our own vanity that makes us want new or almost-new cars? Are you trying to show off you shiny new car when it would actually be much smarter to buy a car that’s three or four years old and still in great condition?
In short, if you have enough savings to buy a car in Germany, it’s smart to buy a used car that’s around three or four years old. You’ll avoid the big drop in value that happens in the first few years. A four-year-old car with about 50,000 kilometers is still reliable and can last you a long time. Check out the most popular sites for used cars in Germany—you’ll definitely find something that fits your needs and budget.
It’s best to pay for the used car in cash if you can, so you don’t have to pay extra interest on a loan. If you can’t pay the full amount, try to make a down payment and finance the rest. That way, your loan will cost you less.
My Experience with used cars in Germany
My first car in Germany was a 20 year old car with a 139 thousand kilometers. It did cause some very minor issues but I was overall very happy with my decision so even very old cars can be a good decision if you are on a very tight budget or know a thing or two about used cars.
ADAC the German auto club says that if a major repair costs about half of what your car is worth, that’s when you should decide: sell it or fix it and keep driving it. Before then, it’s usually worth doing repairs, even if they cost a few hundred euros—especially if your car is around 10 years old with 140,000 kilometers, given the high prices of used cars in Germany.
But after about 12 to 14 years, cars tend to break down more often, and that’s when you should start thinking about getting a different car.
Now buying a car in Germany would definitely be something that you should celebrate. But maybe you can save some money an look into how to buy a house in Germany.
Disclaimer: None of the content in this article is meant to be considered as legal, tax or investment advice, as I am not a financial expert or a lawyer and am only sharing my experience with stock investing. The information is based on my own research and is only accurate at the time of posting this article but may not be accurate at the time you are reading it.